Regulatory watch | An outmoded approach to professional regulation

The extent to which legal services should be regulated has been in the news again this month. At a time when the Solicitors Regulatory Authority (SRA) is consulting on reducing red tape and the extent of its jurisdiction in relation to international practice, the issue of regulatory jurisdiction is again coming to the fore. Its importance to solicitors shouldn’t be underestimated since the cost of complying with regulatory obligations has a massive impact on the terms on which solicitors are able to provide services to their clients.

The LSB has recommended to the Lord Chancellor that will writing should be a regulated activity. Announcing the results of a two year investigation, the LSB confirmed that the will-writing market was not working efficiently, adversely affecting consumers and providers alike. Perhaps counter intuitively though, the Legal Services Board (LSB) has found that there is no case for increased regulation of estate administration and probate activities. This is something of a change of approach on the part of the LSB and has provoked a number of protests to the effect that estate administration is a significant problem and requires closer scrutiny in the form of ?tighter regulation.

Missing the point

The LSB’s reasoning is, apparently, that misconduct in the context of estate administration is usually a criminal offence and therefore there is no case for adding regulatory requirements because the issues are already adequately covered. In some respects this conclusion is alarming coming, as it does, from our oversight regulator as it entirely misses the point of regulation.

To my mind, the purpose of regulation is to ensure that clients are not blindly placing their trust in third parties. It provides a framework of assurance that a provider is meeting minimum standards and that there is adequate redress if those standards ?are not met. The criminalisation of certain types of conduct cannot provide those assurances. That, however, is an argument for another day.

Already several regulators have indicated that they will be applying to regulate will writing, the SRA was one of the first to do so when the LSB first suggested will writing should be regulated last summer. The Institute of Professional Will Writers also threw its hat into the ring at that time and the Chartered Institute of Legal Executives and Council for Licensed Conveyancers confirmed their intentions following the LSB’s announcement on 13 February.

The Lord Chancellor has 90 days to consider the LSB’s recommendation and, should he approve, the estimated time frame to bring will writing within the scope of regulated activities is during 2015.

In a separate move, the LSB has also expressed its continuing concern about the SRA’s separate business rule and the potential effect on competition within the legal sector. The LSB has confirmed that it does not anticipate that its current investigations will find that general legal advice should be a regulated activity and has reinforced its ongoing concerns about the SRA’s approach to solicitor involvement in separate businesses. The SRA has been asked to set out the details of its promised review of the rule by the end of the month.

The Separate Business Rule prevents solicitors from diverting non-reserved legal work to an unregulated firm thus reducing client protection and preserving the jurisdiction ?of the SRA over all legal work carried out ?by solicitors. The LSB has already expressed its dislike for the rule as it effectively ?prevents solicitor involvement in unregulated firms offering certain types of ?legal services.

Bizarre outcomes

In some ways, it is surprising that the separate business rule made it through the advent of ABSs and outcomes-focused regulation (OFR). It is hardly consistent with the need to encourage competition within the legal services market which was, of course, one of the main drivers behind the Legal Services Act 2007. The case for preserving the separate business rule is clearly undermined by ABSs offering services outside the scope of SRA regulation and it does result in some bizarre outcomes for solicitors.

As I see it, the problem we all face as solicitors is that we are still grappling with the outdated notion of reserved activities and how these definitions sit uncomfortably with the current way of regulating persons rather than specific activities. The LSB’s approach is inexorably pushing us towards regulation by activity. I am not sure I like that prospect in rather the same way that I dislike that there is still no comprehensive definition of ‘legal services’ more than a year after the introduction ?of ABSs.